Author Topic: Renting or buying in Chicago given my circumstances at the moment  (Read 1121 times)

otter

  • Stubble
  • **
  • Posts: 105
Hi,

I am on this forum only intermittently, in bursts, but have found it veluable when I do visit and have, I think, been able to contribute a bit myself. I thought it would be a good place to run some upcoming housing-related decisions by for some first-order feedback.

Basic Bio: I live in Chicago (in the city), and work as an engineer. I live in a rented 2-bedroom apartment in a 3-flat on the northwest side of the city, and have lived there for all of the 8.5 years I have lived in Chicago. My office is about 5 miles from home, and my year-round daily transportation is my fleet of bicycles, with occasional CTA use and I drive in the city every once in a while. Cars are my big love (and one of my major hobbies) and I have, um, more than two :)

I found out recently that my landlord was going to put the building up for sale, as she is elderly and she wants to basically retire from being a landlord. She lives a few blocks up the street. My instinctive reaction was for self-protection, including "can I consider buying the building?" I like my home and I like the neighborhood, and would be happy to stay there. It is a neighborhood that is beginning to gentrify. I now find that I may have to move in a couple of months, whether I want to or not, and whether I buy or continue to rent. So it is becoming rather more pressing.

There are also some relationship factors that are unresolved - are we going to move in together, and if so this year or later? And if so, where? My home is very convenient for my work (which is going to move much farther south some time in the next year or two) but very inconvenient for her. Her neighborhood is wildly convenient for her but impossible for me. In general, "compromise" locations exist but are significantly more expensive than where either of us currently lives. I am (mentally) committed to staying in my job at least into next year (when I become vested in my pension plan, if nothing else), but am open to a change after that. That could be in Chicago, or it could be elsewhere. A city that both of us would be happy in seems challenging, as we are drawn to opposite sides of the country.

(All of this is not central to my core question, but may prove useful background and I'll invite secondary comment on it :) )

My core question is, possible future moves aside, whether I can afford to buy a home in a neighborhood on the north side, either in my current neighborhood (Avondale) or in another one that I want to live in and is a good compromise location for us. (If a compromise location, we could buy it together, which would change the money question significantly.)

Money basics (most figures approximate):
Monthly take-home income - $4500-5000
Monthly rent (home plus 2nd garage) - $1500
Investment accounts - $29,000 in Vanguard accounts
Retirement accounts - $4500 in old 401k
                              - $about $45,000 in pension (guessing on this one)
                              -451b, don't remember how much in it but on the order of $5k
                              -Vanguard Roth IRA - $13,000
Cash (MM and checking accounts) - about $57,000

My current rent is well under market. I like nearly everything about my current situation, setting aside the rent/own question - garage, proximity to work and the north side generally, proximity to the CTA, etc.

The idea of buying the place I live in has a strong appeal to me. I like it, it is in pretty good condition, I'm familiar with it, etc. On the other hand I am not sure whether I want to be a landlord or not, with the responsibility (or cost to offload some of that responsiblity onto a manager) that it entails. I would probably prefer a single-family home. Three-flats in my neighborhood tend to run in the mid-$400,000 range, a scary number for me. Single-family homes are obviously less - I think $200,000 is a good rough estimate.

I would much prefer, if I bought a home, to put 20% down to avoid PMI. I would probably get a 30-year mortgage. Of the cash I have on hand, I don't think I would feel comfortable using more than $30k of it, but this would put me below 20% for even a cheap-ish single-family.

A 2-car garage is essential to me, and this is easier to get with a house than it is with another rental. If I reduce the car count by one (something I am strugggling with), a one-car garage would be OK, which is easier for the rental case.

I do not see any way that I can reasonably afford a three-flat by my standards of "afford", which are admittedly very conservative. A home is the only thing I would take a loan out on, as for everything else (including cars), I acquired my grandparents' values of "if you can't pay cash for it, you can't afford it." I realize that some some more financial information might be helpful, and I have been meaning for ages to do a "critique my budget / goals" post, but I haven't gotten to that yet. Perhaps this will prod me. If I own a home, I have not only my monthly mortgage payment but utilities and taxes (I currently do not pay for heat, which is a significant cost.) and a few other things.

With being a landlord, for sure, there are questions of time priorities. I am inclined towards home-as-Toyota-Corolla, where minimal maintenance is required. I would much rather spend my free time working on my cars (I maintain them all myself, and enjoy it), driving my cars, riding my bikes, traveling, and generally doing other things.

I will stop here to avoid running on too much, and add more later based on feedback.

Comments appreciated.

D.
« Last Edit: February 07, 2017, 04:37:51 PM by otter »

SimpleCycle

  • Pencil Stache
  • ****
  • Posts: 886
  • Location: Chicago
Re: Renting or buying in Chicago given my circumstances at the moment
« Reply #1 on: February 07, 2017, 04:44:08 PM »
Hi neighbor!

I think this is a pretty easy answer - if you don't know for sure you want to stay put for five years or more, don't buy.  Transaction costs are high for real estate, so the rent vs. buy equation tips substantially toward rent for short periods of time.

The only exception to this would be if you bought something that could easily be converted into a money-making investment property if you decide to move AND you are interested in being a landlord/real estate investor.  Which would probably mean buying a three flat (I have no idea what the SFH rental market looks like in Avondale, they tend to be more common in further out neighborhoods but still uncommon), but I don't think you're quite in the financial position to buy a three flat.

I don't think buying your current building falls into the "once in a lifetime opportunity" category, so I would continue to rent until you are in a better position to make a decision about the long term.

otter

  • Stubble
  • **
  • Posts: 105
Re: Renting or buying in Chicago given my circumstances at the moment
« Reply #2 on: February 08, 2017, 06:37:27 AM »
Hi, neighbor!

That five-year guideline has also been on my mind. I have been in Chicago since 2008 and last considered buying a home about 4-5 years ago, when I decided I preferred to continue renting. In retrospect I might have made a different decision but one can only see that looking backwards. I would be happy to stay if I did buy a home, as I love Chicago.


SimpleCycle

  • Pencil Stache
  • ****
  • Posts: 886
  • Location: Chicago
Re: Renting or buying in Chicago given my circumstances at the moment
« Reply #3 on: February 08, 2017, 08:44:38 AM »
Hi, neighbor!

That five-year guideline has also been on my mind. I have been in Chicago since 2008 and last considered buying a home about 4-5 years ago, when I decided I preferred to continue renting. In retrospect I might have made a different decision but one can only see that looking backwards. I would be happy to stay if I did buy a home, as I love Chicago.

I will say I actually do own a home here and will probably benefit from the decision to buy when I did, but we also lost $30k on our last home sale, so I know that real estate is not a "sure thing" that you can easily sell at any time.

My other Chicago-specific hesitation about buying is if you think you might want kids, choices about CPS changes the math on real estate dramatically.  Buying into a neighborhood with a sure bet neighborhood school is expensive, but not necessarily as expensive as private school.  The other option is the lottery, and to some extent location matters for the lottery, but in a completely non-straightforward way.  This is obviously irrelevant if kids are not in the plan, or aren't in the plan for a long time.